Idaho's Weekly Journal of Local & National Commentary Week
1315

byFree Market
Duck

Why Capitalism Has An Image
Problem

Mr. Murray is the author of "Coming Apart: The State of White America,
1960-2010" and the W.H. Brady Scholar at the American Enterprise Institute.

(July 29, 2012)

Charles Murray examines
the cloud now hanging over American business -- and what today's capitalists
can do about it.

New York, NY
-- Mitt Romney's résumé at Bain should be a slam
dunk. He has been a successful capitalist, and capitalism is the best thing
that has ever happened to the material condition of the human race. From the
dawn of history until the 18th century, every society in the world was
impoverished, with only the thinnest film of wealth on top. Then came
capitalism and the Industrial Revolution. Everywhere that capitalism
subsequently took hold, national wealth began to increase and poverty began
to fall. Everywhere that capitalism didn't take hold, people remained
impoverished. Everywhere that capitalism has been rejected since then,
poverty has increased.

Capitalism has lifted the
world out of poverty because it gives people a chance to get rich by
creating value and reaping the rewards. Who better to be president of the
greatest of all capitalist nations than a man who got rich by being a
brilliant capitalist?

Yet it hasn't worked out
that way for Mr. Romney. "Capitalist" has become an accusation. The creative
destruction that is at the heart of a growing economy is now seen as evil.
Americans increasingly appear to accept the mind-set that kept the world in
poverty for millennia: If you've gotten rich, it is because you made someone
else poorer.

What happened to turn the
mood of the country so far from our historic celebration of economic
success?

Two important changes in
objective conditions have contributed to this change in mood. One is the
rise of collusive capitalism. Part of that phenomenon involves crony
capitalism, whereby the people on top take care of each other at shareholder
expense (search on "golden parachutes").

But the problem of crony
capitalism is trivial compared with the collusion engendered by government.
In today's world, every business's operations and bottom line are affected
by rules set by legislators and bureaucrats. The result has been corruption
on a massive scale. Sometimes the corruption is retail, whereby a single
corporation creates a competitive advantage through the cooperation of
regulators or politicians (search on "earmarks"). Sometimes the corruption
is wholesale, creating an industrywide potential for profit that would not
exist in the absence of government subsidies or regulations (like ethanol
used to fuel cars and low-interest mortgages for people who are unlikely to
pay them back). Collusive capitalism has become visible to the public and
increasingly defines capitalism in the public mind.

Another change in objective
conditions has been the emergence of great fortunes made quickly in the
financial markets. It has always been easy for Americans to applaud people
who get rich by creating products and services that people want to buy. That
is why Thomas Edison and Henry Ford were American heroes a century ago, and
Steve Jobs was one when he died last year.

When great wealth is
generated instead by making smart buy and sell decisions in the markets, it
smacks of inside knowledge, arcane financial instruments, opportunities that
aren't accessible to ordinary people, and hocus-pocus. The good that these
rich people have done in the process of getting rich is obscure. The
benefits of more efficient allocation of capital are huge, but they are
really, really hard to explain simply and persuasively. It looks to a large
proportion of the public as if we've got some fabulously wealthy people who
haven't done anything to deserve their wealth.

The objective changes in
capitalism as it is practiced plausibly account for much of the hostility
toward capitalism. But they don't account for the unwillingness of
capitalists who are getting rich the old-fashioned way—earning it—to defend
themselves.

I assign that timidity to
two other causes. First, large numbers of today's successful capitalists are
people of the political left who may think their own work is legitimate but
feel no allegiance to capitalism as a system or kinship with capitalists on
the other side of the political fence. Furthermore, these capitalists of the
left are concentrated where it counts most. The most visible entrepreneurs
of the high-tech industry are predominantly liberal. So are most of the
people who run the entertainment and news industries. Even leaders of the
financial industry increasingly share the politics of George Soros. Whether
measured by fundraising data or by the members of Congress elected from the
ZIP Codes where they live, the elite centers with the most clout in the
culture are filled with people who are embarrassed to identify themselves as
capitalists, and it shows in the cultural effect of their work.

Another factor is the
segregation of capitalism from virtue. Historically, the merits of free
enterprise and the obligations of success were intertwined in the national
catechism. McGuffey's Readers, the books on which generations of American
children were raised, have plenty of stories treating initiative, hard work
and entrepreneurialism as virtues, but just as many stories praising the
virtues of self-restraint, personal integrity and concern for those who
depend on you. The freedom to act and a stern moral obligation to act in
certain ways were seen as two sides of the same American coin. Little of
that has survived.

To accept the concept of
virtue requires that you believe some ways of behaving are right and others
are wrong always and everywhere. That openly judgmental stand is no longer
acceptable in America's schools nor in many American homes. Correspondingly,
we have watched the deterioration of the sense of stewardship that once was
so widespread among the most successful Americans and the near disappearance
of the sense of seemliness that led successful capitalists to be obedient to
unenforceable standards of propriety. Many senior figures in the financial
world were appalled by what was going on during the run-up to the financial
meltdown of 2008. Why were they so silent before and after the catastrophe?
Capitalists who behave honorably and with restraint no longer have either
the platform or the vocabulary to preach their own standards and to condemn
capitalists who behave dishonorably and recklessly.

And so capitalism's
reputation has fallen on hard times and the principled case for capitalism
must be made anew. That case has been made brilliantly and often in the
past, with Milton Friedman's "Capitalism and Freedom" being my own favorite.
But in today's political climate, updating the case for capitalism requires
a restatement of old truths in ways that Americans from across the political
spectrum can accept. Here is my best effort:

The U.S. was created to
foster human flourishing. The means to that end was the exercise of liberty
in the pursuit of happiness. Capitalism is the economic expression of
liberty. The pursuit of happiness, with happiness defined in the classic
sense of justified and lasting satisfaction with life as a whole, depends on
economic liberty every bit as much as it depends on other kinds of freedom.

"Lasting and justified
satisfaction with life as a whole" is produced by a relatively small set of
important achievements that we can rightly attribute to our own actions.
Arthur Brooks, my colleague at the American Enterprise Institute, has
usefully labeled such achievements "earned success." Earned success can
arise from a successful marriage, children raised well, a valued place as a
member of a community, or devotion to a faith. Earned success also arises
from achievement in the economic realm, which is where capitalism comes in.

Earning a living for
yourself and your family through your own efforts is the most elemental form
of earned success. Successfully starting a business, no matter how small, is
an act of creating something out of nothing that carries satisfactions far
beyond those of the money it brings in. Finding work that not only pays the
bills but that you enjoy is a crucially important resource for earned
success.

Making a living, starting a
business and finding work that you enjoy all depend on freedom to act in the
economic realm. What government can do to help is establish the rule of law
so that informed and voluntary trades can take place. More formally,
government can vigorously enforce laws against the use of force, fraud and
criminal collusion, and use tort law to hold people liable for harm they
cause others.

Everything else the
government does inherently restricts economic freedom to act in pursuit of
earned success. I am a libertarian and think that almost none of those
restrictions are justified. But accepting the case for capitalism doesn't
require you to be a libertarian. You are free to argue that certain
government interventions are justified. You just need to acknowledge this
truth: Every intervention that erects barriers to starting a business, makes
it expensive to hire or fire employees, restricts entry into vocations,
prescribes work conditions and facilities, or confiscates profits interferes
with economic liberty and usually makes it more difficult for both employers
and employees to earn success. You also don't need to be a libertarian to
demand that any new intervention meet this burden of proof: It will
accomplish something that tort law and enforcement of basic laws against
force, fraud and collusion do not accomplish.

People with a wide range of
political views can also acknowledge that these interventions do the most
harm to individuals and small enterprises. Huge banks can, albeit at great
expense, cope with the Dodd-Frank law's absurd regulatory burdens; many
small banks cannot. Huge corporations can cope with the myriad rules issued
by the Occupational Safety and Health Administration, the Environmental
Protection Agency, the Equal Employment Opportunity Commission and their
state-level counterparts. The same rules can crush small businesses and
individuals trying to start small businesses.

Finally, people with a wide
range of political views can acknowledge that what has happened
incrementally over the past half-century has led to a labyrinthine
regulatory system, irrational liability law and a corrupt tax code. Sweeping
simplifications and rationalizations of all these systems are possible in
ways that even moderate Democrats could accept in a less polarized political
environment.

To put it another way, it
should be possible to revive a national consensus affirming that capitalism
embraces the best and most essential things about American life; that
freeing capitalism to do what it does best won't just create national wealth
and reduce poverty, but expand the ability of Americans to achieve earned
success—to pursue happiness.

Reviving that consensus also
requires us to return to the vocabulary of virtue when we talk about
capitalism. Personal integrity, a sense of seemliness and concern for those
who depend on us are not "values" that are no better or worse than other
values. Historically, they have been deeply embedded in the American version
of capitalism. If it is necessary to remind the middle class and working
class that the rich are not their enemies, it is equally necessary to remind
the most successful among us that their obligations are not to be measured
in terms of their tax bills. Their principled stewardship can nurture and
restore our heritage of liberty. Their indifference to that heritage can
destroy it.

—Mr. Murray is the author of "Coming Apart: The State
of White America, 1960-2010" and the W.H. Brady Scholar at the American
Enterprise Institute.– FM Duck